Blue Hydrogen Bridge Energy Needs EU With Natural Gas East Med-North Africa GCC

The current hydrogen discussion is showing an increased amount of “hype” factors, as rational decision making is most of the times thrown out of the window. The immense and costly green hydrogen plans and projects presented by European Union member countries and the UK aiming to set up a “hydrogen-economy” are not realistic at present. The unavailability of space, resources and investments, combined with a lack of technically feasible infrastructure and water resources, are putting plans and strategies at risk while politicians and green hydrogen proponents are making headlines. At the same time, geopolitical challenges and possible non-EU based projects are in clear conflict with the proposed set up inside of the EU. While major investments are going in the Net Zero linked green hydrogen sector, analysts should be addressing the options available, the possible conflicts of finite financial resources and overall demand. By focusing on green hydrogen, possible hard-needed other renewable strategies are being undermined, as money only can be spent once.

Green hydrogen is not commercially feasible yet in most cases.?A new report by German think tank Agora Energiewende and Guidehouse states clearly that even if European carbon prices more than tripled to 200 euros ($236), hydrogen from renewable energy would still struggle to compete with fossil fuels without further government support. To fully step up green hydrogen in Europe to be competitive with hydrocarbon energy sources, annual subsidies of as much as 24 billion euros this decade, the report states. The challenges put on the road for the EU Green Deal and green hydrogen as backbone are immense. The analysis shows the need to include blue hydrogen in the future strategies, certainly as long as producing hydrogen with renewable sources is much more expensive than the kind made with natural gas that’s commonly used in oil refining and to make fertilizers. The report states also that as demand for renewable hydrogen is poised to surge and the industry scales up, costs will likely fall. Several commercial parties, such as Denmark’s Haldor Topsoe AS and Norway’s Nel ASA, expect that hydrogen made from wind or solar power could be cost competitive with the fossil fuel-based alternative as soon as 2025. Agora Energiewende however is sceptical about the total amount that can be produced at that time. The report also questions the fact to boost green hydrogen vast new investments are needed in green energy capacity to boost hydrogen production capabilities. Rationally it is much more efficient to use the renewable energy produced directly than to convert to hydrogen, loosing vast amounts of energy in the process. In the end the financials are a major constraint, as governments will need to find roads to finance, aka consumers and industry will be confronted by higher taxes.

The future however is not as bleak as shown, as there is not only a vast array of possible hydrogen scenarios, with more positive direct outcomes than the steps taken at present. Without any doubt, the most applicable approach to be taken is the less-green strategies of grey or blue hydrogen, based on still vast usage of available hydrocarbon resources worldwide. Before green zealots are again hitting hard on these options, analysts, politicians and economists, should be looking at the options of geopolitical instability risk mitigation, caused by energy transition and Net-Zero, while using available options to link EU’s energy transition strategies to neighboring regions of the Union.?The need to support economic diversification and energy transition outside of the EU is pivotal, not only for the Climate Change issues, but also for the security and prosperity of all. Current instability in regions such as North Africa, East Mediterranean or Middle East, can be countered by increased EU cooperation on renewables, in which natural gas reserves available outside of the union are a major source of income and stability. Blue Hydrogen, producing hydrogen via natural gas and capturing up to 90% of CO2 emissions, is not only an economic viable option, but also will constrain future emission volumes of this resource. It also will pave a more smooth transition of hydrocarbon exporting and producing countries to a non-carbon based situation, without confronting the latter with huge financial constraints, political and economic instability or outright conflict.

Steps are being made at present to set up at least a potential first basis for such an approach, as international oil companies such as Italian oil and gas major ENI has stated the last days. The Italian giant is currently assessing the options of setting major blue hydrogen projects in Egypt and Algeria. The Italians are linking their overall plans to the Egypt’s current strategy to enter into green hydrogen. At present, Egypt’s Ministry of Electricity and Renewable Energy has set a goal for 42% of the total energy produced in Egypt to be sourced from renewables by 2035. To support the latter an investment project of around $4 billion is being discussed to generate green hydrogen, Egypt’s Minister of Electricity and Renewable Energy Mohamed Shaker stated last month. The project is slated to be linked to an area of more than 7,000 sq. km?which has been allocated for renewable energy production projects in Egypt. Total production is said to be around 90,000 megawatts (MW). Success of green hydrogen still however needs to be shown, as investment needs are high, while overall cost of green hydrogen at present is not competitive.

In a move to support the Egyptian hydrogen drive, ENI has now signed an agreement with the Egyptian Electricity Holding Company (EEHC) and the Egyptian Natural Gas Holding Company (EGAS) to assess projects of hydrogen production in Egypt. The assessment will look at both green and blue hydrogen. Part of the assessment will also be linked to potential domestic market demand for hydrogen and export potentials. The Italian oil and gas major looks at the hydrogen opportunities ofcourse as part of its ongoing €5.7 bln by 2024 in carbon-neutrality push, which is forced upon it by EU regulations, activist shareholders and public opinion. Mitigating part of the current carbon-footprint of ENI’s operations is linked to hydrogen projects in future. The agreement is part of Eni’s plan to reach the target of eliminating Scopes 1, 2 and 3 net emissions (net GHG lifecycle emissions) and canceling out the relative emission intensity (net carbon intensity) by 2050. Possible blue hydrogen opportunities also will mean that the major is not forced to divest part of its vast natural gas assets worldwide, but use it as bridge to Net-Zero.?The same approach the Italians are taking in another North African country, Algeria.?Holding vast natural gas assets already in Algeria, one of Europe’s main gas suppliers, ENI also is assessing blue hydrogen futures. The company is at present even in discussions to acquire more upstream gas assets from other international oils, such as BP, so the necessary scale is there.?British BP is cutting back on its oil and gas portfolios to keep only the assets most likely to be profitable and redeploy capital for a transition to clean energy as uncertainty mounts over future demand for fossil fuel. The deal would help BP to dispose of its Algerian assets after its failure since 2019 to sell its 45.89% stake in the In Amenas natural gas plant. BP also holds a 33% stake in the In Salah gas plant. Even that additional natural gas assets would increase in principle ENI’s carbon footprint, the fact that Algeria has a vast gas pipeline infrastructure to Europe could be an additional future advantage if (blue) hydrogen can be exported.?A combined ENI-BP blue hydrogen option is also still on the table, as both holds vast gas assets in Algeria and Egypt (Zohr, Nour, Shorouk).

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Taking a much more bird’s view of the hydrogen-natural gas situation, the East Mediterranean and Middle East are available resources to tap into. Europe’s soft belly, the area between Greece, Cyprus, Turkey, Egypt and Israel, has been not only a major region of conflict but also shows a vast potential for offshore gas reserves. After Egypt’s Offshore Nile Delta adventures at the end of the 1990s, vast new gas reserves have been discovered in the East Med, led by Egypt’s Zohr field and Israel’s offshore Leviathan. Cyprus, member of the EU, is also looking at potentially commercial attractive reserves, which combined with others (Egypt-Israel) are meant for export to Europe. Total reserves are vast, but infrastructure constraints (offshore pipelines), geopolitical risks (Turkey-Greece-Cyprus) or gas market pressure (LNG), have put some of the plans on hold, while increasing instability in and around the region. East Med’s gas adventures have been looking at existing European demand, while indirectly keeping an eye on Turkish local gas demand situation. The Arab Spring, instability in Syria and the growing aggressive military moves of Turkey in the region, however have put a major damper on optimism. At the same time, the slow development of an regional gas infrastructure also has not been supporting all. Diverging strategies, proposed by the EU, supporting a major multibillion deepwater gas pipeline, or a feasible Egypt LNG export hub strategy, have been slowing down overall implementation. Market situations also have not been very positive, as the global oil and gas glut have put prices under pressure, while Egypt’s LNG is confronted even by increased LNG competition from Qatar, Russia and others, or the expansion of Russian-Turkish onshore gas pipeline infrastructures.

Confronted by a potential long-term EU Green Deal anti-natural gas lobby and low LNG/gas prices on the market, East Med gas futures could be looking bleak. To prevent these vast and potentially very attractive reserves to become stranded, other options are needed. Europe’s still growing energy needs, which are mainly electricity, can be met by including East Med gas into a blue hydrogen supra-regional approach. By changing East Med gas from LNG/pipeline targets to a blue hydrogen opportunity will not only be very attractive for Europe but also support ongoing energy transition and economic diversification in North Africa and East Med. For a blue hydrogen strategy, several main pivotal factors are already in place, as the region has a significant gas transport infrastructure, while LNG export plants can be used to support hydrogen projects in future too. For Europe and the East Med this is a win-win situation, also for climate.?Politicians should also understand that future energy cooperation between the EU -North Africa/East Med is a necessity. To unilaterally force countries to throw away income and security, the EU is playing with fire. By integrating energy and economic development of both regions, potential cooperation is guaranteed. Even that some will not be willing to address another issue, but East Med hydrogen infrastructure could still be linked to Turkey. Ankara’s current political and military role in the region is not positive, especially in the eyes of Greeks, Cypriots and Egyptians, but also here money makes the world spinning round.

This geopolitical-energy economic design, promoting in the end a greener economy and society, is even not yet all. The historical energy links between Europe-North Africa and Middle East still exists. The energy dependency of European countries maybe have been waning, especially when looking on Middle East oil supplies, but a strong natural gas link is still there. Qatar, Egypt and Algeria are main suppliers. At the same time, most Gulf based oil exporters are investing heavily in hydrogen too. The amount expected to be spend by Saudi Arabia, UAE, Qatar and potentially Iran-Iraq is staggering. At present, most of these future projects are linked to green hydrogen and Asian markets, mainly China, Japan and India. For Europe this presents an opportunity. Energy transition and economic diversification in Saudi Arabia, UAE and Qatar, doesn’t only present opportunities but also risks. Change is directly linked to societal and economic transformation, resulting in new power blocks and instability. To have the future of the Gulf region only be linked to Asian Tigers is not to the advantage of others. Linking the appetite of Arab governments and their respective sovereign wealth funds (PIF, ADIA, QIA, Mubadala) for new energy or hydrogen should be linked to Europe’s thirst and appetite for the latter. There are already major energy links to Europe, as Aramco, ADNOC, KP and QP, are all operators and investors in European countries. At the same time, the same groups are investing and operating in Egypt, North Africa and East Med, mainly oil and gas related. To bridge the gap between Europe’s Green Deal strategies and Gulf countries, hydrogen can be the cornerstone of not only a bridge, but also remove part of the increased fears in Arab countries about Europe. Bridging the gap can be mutually beneficial, Europe is a major future market for renewable energy while Arab countries can use economic diversification and technology innovation options. By smoothing up transition, and presenting potential markets, change becomes easier and less risky. At present most parties are still living in silo's, not using or seeing opportunities available. By presenting also potential interest in blue hydrogen, Europe not only mitigates hydrocarbon emissions at home but also in other regions. It is a win-win situation, now somebody needs to take the first step and walk the bridge.?